Marcus Marion, CMA™ “Can I use my spouse’s income when applying for a VA home loan, even if he or she has not served in the military?”
This is a common question among military members and veterans who want to use the VA loan program to buy a house. And it’s easy to understand why. Bringing a spouse’s income into the mix could help you qualify for a bigger loan amount, among other benefits.
The short answer is yes, borrowers who are eligible for a VA loan can often include their spouse’s earnings as part of the total income. This is true even when the spouse is a civilian who has never served in the military.
Using a Civilian Spouse’s Income With a VA Loan
Definition: A “VA loan” is simply a mortgage loan that gets guaranteed by the federal government, under the oversight of the U.S. Department of Veterans Affairs. This program rewards military members and veterans, helping them achieve their dreams of homeownership.
As you might already know, the VA home loan program offers a number of compelling benefits for eligible borrowers. Topping that list is the ability to buy a house with no down payment and without having to pay any mortgage insurance.
As an added benefit, eligible borrowers who use a VA loan to buy a house can count their spouse’s income for mortgage qualification purposes. The primary borrower must be a military member or veteran, according to official VA guidelines. But the spouse does not.
In short: if the spouse is named on the mortgage documents, and therefore partly responsible for repaying the loan, his or her income can also be counted toward loan approval.
VA Pamphlet 26-7, which serves as the official guide for mortgage lenders that participate in this program, instructs lenders to “verify and treat the income of a spouse who will be contractually obligated on the loan the same as you would the income of a Veteran borrower that will be obligated on the loan.”
For both the primary borrower and the spouse, mortgage lenders must determine that the income is stable and reliable, and anticipated to continue for the foreseeable future.
The Benefits of Combining Two Income Sources
So, a military member or veteran who is eligible for a VA-guaranteed mortgage loan can use both their own income as well as their spouse’s income.
But why would a borrower want to do this? What’s the benefit of using combined income sources, instead of just the one, when applying for a VA loan to buy a house?
Here are the potential advantages:
1. Higher Qualifying Income
When both the veteran and the non-military spouse’s earnings are considered, the total household income increases. This could help you meet VA loan requirements and increase the chance for loan approval.
For instance, if a veteran earns $50,000 annually and their spouse earns $60,000, the combined household income would come to $110,000. This provides a stronger financial profile than the veteran’s income alone.
2. Enhanced Financial Stability
Lenders use underwriting procedures to ensure that borrowers have a stable and reliable source of income. A combined income from both spouses can provide greater financial stability, as the risk is spread across two income sources. This reduces the lender’s risk and improves the chances of loan approval.
3. Residual Income Requirements
VA-guaranteed home loans require borrowers to have a certain amount of residual income left over each month, after all major expenses are paid. This residual income ensures that the borrower can cover basic living expenses.
By including the spouse’s income, the household is more likely to meet or exceed the residual requirements. This can make it easier to qualify for a VA loan.
4. Improved Loan Terms
Higher combined income could also lead to better loan terms, such as a lower interest rate. Lenders typically offer more favorable terms to borrowers who demonstrate greater financial capability and lower risk.
In many cases, including a spouse’s earnings can result in a lower overall debt-to-income ratio. This in turn reduces the lender’s risk and could help you secure a better mortgage rate.
5. More Purchasing Power
When you apply for a VA loan, the amount you borrow will largely depend on the size of your income. This means that if you bring a non-military spouse’s income into the picture, you could qualify for a larger loan amount and buy a more expensive home.
Combined Income Means Shared Responsibility
In order to have a spouse’s income count toward the VA loan approval amount, the spouse will have to be named on the mortgage documents as a co-borrower. This means they are just as responsible for the debt as the primary borrower.
So before using this strategy, be sure to consider the following.
- Equal Repayment Obligation: Both you and your spouse are legally obligated to make the monthly mortgage payments.
- Credit Impact: If payments are late or there’s a default (failure to repay), both your and your spouse’s credit scores could suffer a hit.
- Foreclosure Risk: In the worst-case scenario of foreclosure, both of you could lose ownership rights to the property.
There are some obvious advantages to having your spouse on the mortgage, especially if they have stable income and good credit. But you also have to consider the shared responsibility that comes with it, in order to make an informed decision.
